Pakistan’s Finance Minister Asad Umar launched the Medium-Term Economic Framework (MTEF) report titled ‘Road map to Stability, Growth and Productive Employment’.
The policy framework has been developed based on inputs from the Prime Minister Economic Advisory Council (EAC) and development partners including World Bank and Asian Development Bank.
Finance Minister highlighted 3 critical factors that have constrained Pakistan’s growth potential and caused cycles of balance of payment crisis. These include the Revenue-Expenditure gap, the Saving-Investment gap and the Export-Import gap.
Finance Minister stated that the MTEF report showcases the government’s strategy to deal with these three structural imbalances and putting the economy on the path to sustainable growth and job creation. To address the Revenue-Expenditure gap, the government has launched a comprehensive tax reforms agenda with focus on simplification of tax procedures, aggressive use of technology to identify tax gaps and enhancing enforcement capacity of the tax machinery.
He highlighted the recent changes in laws related Benami Assets and actions taken by FBR as the first phase of this strategy. Similarly, he highlighted measures to curb expenditures of the public sector through new rules that will prohibit supplementary grants and lead to greater accountability for improvement in public financial management.
To address the Export-Import gap, the Finance Minister highlighted that government has taken measures to bring stability to the exchange rate market and noted that the SBP feels that the previously overvalued exchange rate (between 2015-2018) has now come close to its equilibrium point.
He lamented that Exports had collapsed in the last five years and Pakistan’s export to GDP ratio fell to just 8% in 2017, compared to Bangladesh (15%), India (19%), Turkey (25%) and Vietnam (102%).
He highlighted that the current regime has taken immediate steps to enhance competitiveness of the Export industry through reduction in their energy costs and by processing their long overdue refund claims. Going forward the government would focus on a comprehensive overhaul of the duty structures and reforms for ease of doing business to boost exports.
The Finance Minister emphasized the role that greater regional connectivity with China and Turkey will provide in linking Pakistan with the Global Value Chains. He also highlighted that the new agriculture policy will boost exports through productivity gains.
Finance Minister stated that his government was sensitive to the difficulties faced by the poorest and most vulnerable households due to the rising inflation.
He highlighted the Prime Ministers initiative ‘Ehsas’ as a comprehensive strategy to address the challenges faced by the most vulnerable and poorest households.
The Finance Minister concluded his speech by quantifying the impact the MTEF reforms will bring to the economy. He noted that as a result of the reforms the economy will grow at a sustainable pace of 6% to 8% over the medium term, without facing cycles of economic instability in the shape of a balance of payment crisis.
He stated that more ‘productive’ jobs will be created in the next 5 years than in any period of Pakistan’s history with the government channelling resources to the most job intensive sectors in the economy including housing, SME industry (Kamyab Jawan program), tourism, agriculture industry and IT.
The Finance Minister stated that as a result of the MTEF reforms Pakistan will be able to move towards an inflation targeting framework in 2020. This will help to bring down Inflation to below 5% and sustain inflation at these levels. Combination of higher employment opportunities coupled with lower inflation and wider social safety nets will help to bring down poverty.
The Minister concluded by stating that successful reforms will ensure no government in the future will have to go the IMF or other friendly countries for emergency financing.